Janet Yellen & The Bank of Canada Today…

Chuck Butler’sA Pfennig For Your Thoughts

July 12, 2017


Good day… And a Wonderful Wednesday to you! Hot, Hot, Hot… And for all you 80’s music lovers out there (Hi Rick!) I’m not talking about the 1987 hit song, I’m talking about the weather outside! But after spending a majority of the day right here at my writing desk in the air conditioning, it felt real good to go outside and “warm up”! The Outlaws greeted me this morning with their song: Green Grass and High Tides… Now that song will get your motor started in the morning!

The currencies rallied VS the dollar yesterday, but in the overnight markets, there has been some profit taking. UGH! One of the first things I learned as a young trader was: It’s not a profit until you take it!  So, here we are on this Wonderful Wednesday, with the dollar having “bounce days” recently, but for the most part, the sentiment is in the process of switching from the love of dollars to the love of the currencies. 

Last night I was checking the currencies in the Asian markets and saw that the euro was getting very close to climbing above 1.15, but I guess that signaled a sell for profit taking, and the single unit is 1.1457 as I write this morning. Remember when I told you that the chartists / technical traders said that 1.1428 was the last line of defense for the dollar, and if that level was completely taken out, that the next stop for the euro was 1.17?  Well, it sure looks to me as though the 1.1428 level has been completely taken out, or is in the process of doing so… I’m just saying… wink, wink… 

So, what does “completely taken our” mean? Well, it’s really one of those “moving targets” if you will. I view it as the level was taken out, and the asset continued to move above it, and then stayed above the level for a day or two… These brief breaches above a level don’t count in my book! 

Well, today is the day Canadian rates might be raised for the first time since 2010, as the Bank of Canada (BOC) meets. The Canadian bond guys seem to think that the rate hike is in the bag, as they’ve driven bond yields up 26 basis points in the last month.  IF the BOC does hike rates today, and I believe they should, should have, and will be real dolts if they don’t, it will be a 25 basis point (1/4%) move to bring their internal rate to 75 basis points or 3/4’s of a percent… Still pretty darn low, eh? 

I said this a few weeks ago, but that might have been before the email version of the Pfennig was being sent, and it was only being posted on the website: www.dailypfennig.com, which remains the first place you’ll see the Pfennig in case the email version is being delayed. Anyway, getting back to what I was saying, I said this a few weeks ago, and it is really showing up this morning… 

The Norwegian krone is finally getting of its duff, and dusting off its old, strong currency clothes, to see if they still fit! The krone has been held down by the falling Oil price, and the fact that the euro was in the doldrums… But now that the euro is picking up the pace with a strong rally of its own, the krone can take hold of the euro’s coattails and rally too.. It also doesn’t hurt the krone for the price of Oil to not be slipping and sliding down the slippery slope! 

A currency that I don’t talk about often, is also on the rally tracks, and is doing it very quietly, as to not wake up those around it… The Hungarian forint is also grabbing hold of the euro’s coattails and pulled itself up on the rally tracks.  The Hungarian forint (HUF) was once a part of a trio-of- currencies that I called the “Euro Wannabes” that also included the Polish zloty, and the Czech Republic koruna. These three were all in the ERM (exchange rate mechanism) that the currencies had to trade in for a period of time before being accepted into euro club. But one by one they began to have problems with their financials and didn’t meet the criteria of the Maastricht Treaty, which most of the other euro countries didn’t meet either, but this caused each country to eventually pull their currencies out of the ERM, and live for another day. 

And now they sit outside of the euro/ Eurozone, and wait for the day that their financials are better, and their respective currencies are ready for that trip to the ERM.. 

I told you on Monday that the Brazilian real was rallying and I would find out more… Well, here you go! Real traders were anxiously awaiting the voting returns from the Brazilian Senate on a new set of laws on labor… And then yesterday they got their wish, and the Senate approved the law that  aims to reduce costs for businesses and allow firms to negotiate contracts freely with employees.

It was deeply unpopular with unions, who say it will reduce job security and called two general strikes in protest

The vote is expected to give President Michel Temer a boost before Congress’ lower house decides if he should be suspended to face corruption charges. The bill will now be sent to President Temer to be signed into law.

And the real is still on the rally tracks this morning! Overall, the currencies look much healthier this morning as evidenced, sort of, by the drop of the Dollar Index below 96…

I have a friend, Sean Hyman, who is a technical guru when it comes to charts, and he sent me a note the other day, saying that he thought the Dollar Index looked vulnerable and could fall to the 93 region…  I thought, “hmmm, that sure would be good for euros, & Gold”

Speaking of Gold… The shiny metal was allowed to gain $3.10 yesterday and close at $1,217.20.. It lost some ground in the “after hours” trading, but has gained back $2.90 so far this morning in the early trading to sit at $1.216.90..  Did you see this news?>>>>  The Trump administration has taken a key step toward paving the way for a controversial gold, copper and molybdenum mine in Alaska’s Bristol Bay watershed, marking a sharp reversal from President Barack Obama’s opposition to the project.”

The Environmental Protection Agency on Tuesday proposed withdrawing its 2014 determination barring any large-scale mine in the area because it would imperil the region’s valuable sockeye salmon fishery. The agency said it would accept public comments on the proposal for the next 90 days.  Very interesting don’t you think? It’s all politics, and apparently the politics have changed..  But you won’t see me get in the middle of this! I’m just here to report the news! 

The price of Oil has rebounded to trade above the $45 handle this morning.. I have more on this in the FWIW section today, so keep reading to get there! HA!

Yesterday’s U.S Data Cupboard had a couple of interesting prints… Wholesale Inventories and the NFIB Small Business Index. Not exactly what I call “real economic prints” but things to keep an eye on anyway… The NFIB Small Business Index fell in June, and notably the gauge of expected business conditions fell 6 points last month, and the NFIB says that 6 points is “significant”!    We also saw Wholesale Inventories, and for that information I’ll turn this over, ever-so-briefly to the folks at zerohedge.com… 

“Well they “built it”, but in May, “no one came.” Wholesale Inventories rose a better-than-expected 0.4% MoM but sales tumbled worse-than-expected 0.5% (the 3rd monthly decline in a row).
Inventories reversed April’s decline…but sales keep falling…and accelerating…

Automotive inventories rose 0.7% MoM (against April’s 1.4% drop) but Automotive sales dropped 0.5% in April.

Wholesale Inventories are still marginally lower for Q2 so far (-0.13%) providing a modest drag on GDP, but sales are down 0.77% in Q2 with the biggest 3-month decline since March 20.”

Today’s Data Cupboard has the return of the Janet Yellen show for us! The Fed Chair, will make the trip up to the Hill to visit with members of the House one day, and the Senate the next day, in what used to be called the “Humphrey / Hawkins Bill” that required the Fed Chairman to report to Congress the state of the economy twice a year. That bill expired a very long time ago, but Fed Chairmen and now the Chair have continued to give their reports… 

This will be important for the dollar, currencies, Gold and bonds today folks… Because even though she has been wrong since she took over the leadership of the Fed, but continues to rinse and repeat the same line about how the Fed sees a pick up of growth and inflation in the second half this year, the markets will react to what she says..  Why? you ask, since her previous forecasts have as bad as, well, they’ve been bad? 

You’ve got me on that one, Joe… They should get a good belly laugh and then sell dollars if you ask me… But that’s not what they’ll do, IF she rinses and repeats again today. 

It’s a good thing Congress doesn’t request Paul Craig Roberts to give them his report on the economy’s progress… You may recall that name, as Paul Craig Roberts was the Treasury Sec. for President Reagan, and yes that was a long time ago, but he has become a real pain in the side for the Government, as he calls them out all the time..  Here’s a recent tirade from him about the BLS… 

“It is very easy for the government to report a low jobless rate when the government studiously avoids counting the unemployed.

Now, let’s do what I have done month after month year after year. Let’s look at the jobs that the BLS alleges are being created. Remember, most of these alleged jobs are the product of the birth/death model that adds by assumption alone about 100,000 jobs per month. In other words, these jobs come out of a model, not from reality.

Where are these reported jobs? They are where they always are in lowly paid domestic services. Health care and social assistance, about half of which is “ambulatory health care services,” provided 59,000 jobs. Leisure and hospitality provided 36,000 jobs of which 29,300 consist of waitresses and bartenders. Local government rose by 35,000. Manufacturing, once the backbone of the US economy, provided a measly 1,000 jobs.”

His tirade can be found in its entirety here:   http://www.informationclearinghouse.info/47417.htm

Before I head to the Big Finish today, I wanted to highlight something that made me scratch my balding head… Lola, aka Goldman Sachs, has issued a report calling for Japanese yen to become the better safe haven than Swiss francs..  Wait! What? Japanese yen? You’re kidding me right? And don’t tell me I’m your favorite goat! Come on Lola what have you been smoking? Japanese yen? YIKES!  I have to steer clear of that one folks, otherwise I’m going to get in trouble with the folks at Lola… 

And one more thing… some folks ask me from time to time why I call Goldman Sachs, Lola.. Because you know the song, “what Lola wants, Lola gets”, and that describes Goldman to a T… 

To recap… The lazy, hazy, crazy days of summer found some shade yesterday, and cooled off, which allowed the currencies, for the most part to rally VS the dollar. The currencies were stronger last night before some profit taking took place. The Bank of Canada meets today and are expected to hike rates 25 basis points, their first rate since 2010. And more weak data for the U.S. yesterday.. 

For What It’s Worth… I mentioned above that the price of Oil had gained a bit yesterday, and there are two reasons for this… And both of them are discussed in this article that can be found here: https://www.bloomberg.com/news/articles/2017-07-10/oil-holds-gains-above-44-as-u-s-crude-stockpiles-seen-falling

Or, here’s your snippet: “Oil rose the most in more than a week after the Energy Information Administration cut its U.S. crude output forecast for next year and as investors focused on the pace of rebalancing.

The EIA cut its 2018 crude output forecast to 9.9 million barrels a day from 10.01 estimated in June. It’s the first time the EIA lowered its forecast for 2018 production since the agency started posting the estimates in January. The market earlier shrugged off a report that Saudi Arabia, the world’s biggest oil exporter, told OPEC it raised output above its agreed-upon limits.

“This pull-back in production is kind of wake-up call to people who thought that shale was going to be viable no matter what OPEC did,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone. If output doesn’t rise as much as previously anticipated, “then it’s time for the bears to start questioning their religion again.”

Chuck again… Boy, do I wish I had read this article before sending off my most recent piece for the Dow Theory Letters website (www.dowtheoryletters.com) for I wrote about Oil… and the what moves the price, etc. And called for Oil to remain range bound in price… I used to tell this joke, about a dumb guy, who is a comedian, and he says, “I’m a dumb comedian ask me what the hardest part of my job is” and before the respondent can finish his response, the comedian says, “timing”…
That’s how I feel this morning… timing is everything, especially when you mistimed something!

Currencies today 7/12/17… American Style: A$ .7650, kiwi .7233, C$ .7738, euro 1.1457, sterling 1.2851, Swiss $.9628, … European Style: 13.3798, krone 8.2616, SEK 8.4149, HUF 268.38, zloty 3.7037, koruna 22.7881, RUB 60.61, yen 113.44, sing 1.3844, HKD 7.8119, INR 64.55, China 6.8019, peso 17.89, BRL 3.2512, Dollar Index 95.72, Oil $45.77, 10yr 2.35%, Silver $15.80, Platinum $906.75, Palladium $859.01, and Gold… $1,216.90

That’s it for today… Well, I tried to stay awake for the All-Star Game last night, but didn’t quite make it. I did see Cardinals catcher Yadier Molina, hit a home run though!  But the NL lost 2-1, UGH! Growing up, I don’t recall seeing the AL win an All-Star Game, but as an adult, they’ve won quite a few! Cardinals pitcher, Carlos Martinez pitched very well for his 2 innings. And I’ve gone on too darn long today, sorry… I hope you have a Wonderful Wednesday, and remember to be Good To Yourself!

Chuck Butler